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February 19, 2013

Goal-Based Wealth Management: Preparing Clients for Retirement

Retirement is not what it used to be. Once, with a sound, performance-based wealth management plan, our forebears could count on an adequately-funded retirement in which they had sufficient assets to meet their needs.

But your Baby Boomer clients may not have that luxury. Why? Because they’re living longer and their money is running out.

The cost of living is far outpacing increases in income

Pension plans have gone the way of the dinosaur.

Market volatility has eroded clients’ lifetime savings.

Healthcare costs are rising, particularly elder care.

The housing market caved in, cutting the value of many investors’ most valuable asset.

Tougher tax policies may yet kick in.

The result? Even a high-performing wealth management plan may not be able to keep up. Investors are realizing that the old-fashioned way of managing their wealth is not going to get them to the Promised Land, and instead, are turning to goal-based wealth management.

In my opinion we are in the midst of a sea change in wealth management in terms of how advisors and their clients alike will measure success in the future.

Personal Goals; Standardized Tools

Goal-based wealth management is as unique as the individual. One investor’s goal may be to set aside $10 million to start a foundation. Another investor may simply want to enjoy a retirement where he and his wife can afford to golf and go out for dinner twice a week. And yet another investor may wish to leave sizable inheritances to her children (a goal that is less easily achieved these days).

To achieve these goals—and in the process, put goal-based wealth management to work for them—many investors have chosen to go with a traditional advisory firm. But many are also choosing online entities that offer centralized financial advice, such as Mint, Simplify, Prosper, Betterment, SigFi, Personal Capital Corporation, Wealthfront, and Covestor, to name a few.

One of the biggest reasons for the popularity of online providers is that they offer useful new electronic tools that investors can use to develop their investment strategies and map out their financial futures.

For example, there are financial planning applications that help investors set up their goals in the first place. There are disbursement applications that calculate the rate at which investors should access their money in retirement. There are also a wide range of other apps—all of which help give the online providers their appeal as goal-based wealth management resources.

How Traditional Advisory Frms Are Adapting

You may have already helped clients implement a goal-based model, or you may be about to. In which case, shouldn’t your firm be offering electronic wealth management tools, too? In my opinion, the answer is a resounding “Yes.”

In the years to come, these wealth management tools will become pervasive—and not just for self-directed investors. They’ll become a resource your clients will readily use, not as a substitute for your services, but as a complement to it.

That means you need to bolster your own technological capabilities. And it means you need even better access to the financial data that drives the technology that you and your clients are using.

Get the data into your systems, including data from held-away accounts.

Move the data seamlessly between systems.

Make it extremely easy for the end user to work with the data.

All of this is eminently possible with “single feed” access to all the data that you and your clients need. It’s one reason why ByAllAccounts is seeing increased demand for our account aggregation services.

Because with allthe right data, you and your clients can set the personal wealth management goals that go beyond performance measurement, and instead provide a real-world benchmark of true financial longevity and security.

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